It is a surprise decision that will let his top foe and Russia's formerly richest man out of prison after more than a decade.

The move, along with an amnesty for the two jailed members of the Pussy Riot punk band and the 30-member crew of a Greenpeace protest ship, appears designed to assuage international criticism of Russia's human rights record ahead of February's Winter Olympics in Sochi, Putin's pet project.

It was arguably Putin's biggest political decision of the year.

Putin waited until just after his tightly choreographed annual news conference to make the announcement, dropping the biggest news of the day after journalists had already peppered him with questions in a four-hour marathon.

Putin said Khodorkovsky, who was set to be released next August, had submitted an appeal for pardon, something he had refused to do before.

"He has spent more than 10 years behind bars. It's a tough punishment," Putin said. "He's citing humanitarian aspects - his mother is ill. A decree to pardon him will be signed shortly."

The head of the Kremlin's United Russia faction said he expects Khodorkovsky to celebrate the New Year at home with his family.

Putin's announcement "came as a big surprise for me, totally out of the blue", Khodorkovsky's mother Maria told RT television.

His father Boris said in remarks posted on the Slon.ru online newspaper that the move was clearly linked to the 2014 Sochi Olympics.

"We are old people, and we are waiting, hoping to live to the moment when we can embrace him," he said.

In October 2003, masked commandos stormed into Khodorkovsky's jet on the tarmac of a Siberian airport and arrested him at gunpoint. He was found guilty of tax evasion in 2005 and convicted of embezzlement in a second case in 2010.

Critics have dismissed the charges against Khodorkovsky as a Kremlin vendetta for challenging Putin's power. During Putin's first term as president, the tycoon angered the Kremlin by funding opposition parties and also was believed to harbour personal political ambitions.

His actions defied an unwritten pact between Putin and a narrow circle of billionaire tycoons, dubbed "oligarchs", under which the government refrained from reviewing privatisation deals that made them enormously rich in the years after the Soviet collapse on condition that they didn't meddle in politics.

Putin, however, didn't say a word about the fate of Khodorkovsky's business partner, Platon Lebedev, who was convicted and sentenced in the same trials. Putin's spokesman Dmitry Peskov said he hadn't asked for pardon.

During the press conference, Putin was asked about if Khodorkovsky could face yet another criminal case that would keep him longer behind bars. He gave a vague answer, saying he doesn't see grounds for that but prosecutors must investigate alleged offences.

Gleb Pavlovsky, a former political consultant for the Kremlin, said on Ekho Moskvy radio that Khodorkovsky might have submitted his pardon request after being threatened with yet another trial.

At the time of his arrest, Khodorkovsky was estimated to have a fortune of about US$15 billion (NZ$18.3bn) but it's not clear what is left of it. Khodorkovsky's oil company, Yukos, was once Russia's largest but it was dismantled after his arrest, its most lucrative assets ending up in the hands of the state-owned company Rosneft.

"The pardoning of Mikhail Khodorkovsky is a good decision," he said in a statement.

At his press conference, Putin also confirmed that an amnesty approved on Wednesday by the Kremlin-controlled parliament will apply to the two members of Pussy Riot still in jail and to the Greenpeace crew facing hooliganism charges for their protest at a Russian oil rig in the Arctic.

Putin still stood by his strong criticism of Pussy Riot's irreverent 2010 protest at Moscow's main cathedral, describing it as a publicity stunt that "crossed all barriers".

He also alleged that the Greenpeace activists, who spent two months in jail after their Arctic protest before being granted bail, were trying to hurt Russia's economic interests.

Putin weathered months of massive protests against his rule in 2011-2012, when more than 100,000 gathered to oppose his return to the Russian presidency. A demonstration in May 2012 a day before his inauguration for a third term ended in scuffles with police. The amnesty bill included only eight out of the 26 people tried or awaiting trial in connection with that anti-government protest.

Putin defended the decision not to offer amnesty to others, saying their release would give a bad example.

"No one should be allowed to violently trample on the law," Putin said.

Despite strains in Russia-US ties, the Russian president offered support to President Barack Obama, saying that surveillance by the US National Security Agency is necessary to fight terrorism. The US government should "limit the appetite" of the agency, however, with a clear set of ground rules, he said.

Putin, a 16-year KGB veteran and the former chief of Russia's main espionage agency, said while the NSA programme "isn't a cause for joy, it's not a cause for sorrow either" because it's necessary to monitor large numbers of people to expose terrorist contacts.

Asked about former NSA contractor Edward Snowden, whom Russia has granted asylum, Putin insisted that Moscow isn't controlling him and hasn't tried to learn his secrets.

He argued that any revelations published by Snowden must have come from materials he provided to journalists before landing in Russia. He reaffirmed that Moscow made providing refuge to Snowden conditional on halting what Putin called his anti-American activities.

Putin said he hasn't met with Snowden. He insisted that Russian security agencies haven't worked with him and have not asked him any questions related to NSA activities against Russia.

Putin also dismissed a report claiming that Moscow stationed its state-of-the art Iskander missiles in its Kaliningrad exclave that borders NATO and EU members Poland and Lithuania.

Journalists waved handwritten posters with names of their cities to attract Putin's eye. One succeeded by holding up a Yeti doll in a T-shirt with the name of her region, while another invited Putin to attend a party at her newspaper.

Many acted as regional envoys, asking for state support for specific projects. Others complained about official abuses.

One journalist from Russia's far east complained about a clash between local police and the drug enforcement agency - and Putin ordered an immediate check into the situation.